Question
A firms minimum efficient scale is the smallest volume at which it can minimize its average total cost (ATC). Average total cost is defined as
A firms minimum efficient scale is the smallest volume at which it can minimize its average total cost (ATC). Average total cost is defined as (total fixed cost + total variable cost)/(quantity produced). Fixed costs are costs that do not change directly with the quantity produced (for example, the cooks salary in a restaurant). Variable costs vary directly with the quantity produced (for example, the cost of ingredients used in a restaurant). Total variable costs are the variable cost per unit multiplied by the number of units produced. Consider a fast-food restaurant with variable costs of $1 per meal. A cooks salary is $1,000 per week, and one cook can cook up to 100 meals per week. If more than 100 meals a week (but no more than 200 meals a week) are needed, the restaurant must hire one additional cook, and so on. That is, for 0 to 100 meals a week, the weekly fixed costs are $1,000; for 101 to 200 meals a week, the weekly fixed costs are $2,000; for 201 to 300 meals a week, the weekly fixed costs are $3,000; and so on. What is the restaurants average total cost per meal at minimum efficient scale? $11.00 $21.00 $12.11 $11.75 $13.00
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